No, you did an installment sale, it is more than interest. No, you don't change your business type. Here is the breakdown:
Changing business type or type of income.
- Business: Two people in an LLC, you are filing a business return for partnership, S corp or C corp. If you didn't file any paperwork to choose S or C, you are a partnership and should be filing partnership tax returns that generate a K-1 for each of you to put on your personal return.
- Type of income: You did an installment sale in 2024 so it is no longer rental income it is income from the installment sale Form 6252 on your partnership return along with interest from the sale on your Portfolio interest.
- Activity code for your business should change if this is your only property, maybe 531390 for activities related to real estate.
Putting it all together:
File your business return which includes:
- interest income, Sch K, line 5
- principal gain, the capital gain from the sale, Form 6252
- principal basis, the part you paid originally that was returned to you, reported on Form 6252 and not taxed
Please look at your installment sale from 2024 to show you your basis claimed and the gain on the property. Reference it for your 2025 return. If you did not do an installment sale, amend your 2024 return, amend your k-1's, amend your personal returns.
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